Buying a car and getting a good price and interest rate requires savvy skills. Car salesmen and dealerships want to make a certain amount of money on each purchase, and lenders base interest rates for auto loans on credit scores. For these reasons, there are several things to take into account before buying a car.
Invoice Price
The sticker price on a new automobile is what the dealer hopes to receive for a new car purchase. However, the invoice price is what they paid the manufacturer for the car, and knowing the invoice price paid by dealerships provides a price point to begin negotiating the price of the car. Find invoice prices for various automobiles with car buying guides such as Edmunds.com and Kelley Blue Book. Enter the make, model and year of the automobile to learn what dealerships paid.
Credit Score
Know your credit score and the information listed on your credit report before buying a car. Credit scores and history affect two aspects of buying a car -- approvals and the interest rate on the auto loan. MyFICO.com offers credit scores for a fee, and Annual Credit Report gives consumers access to one free report from the three credit bureaus each year. Some dealerships work with bad-credit applicants and offer sub-prime auto loans. However, a score in the upper 600s and higher makes you a candidate for a desirable interest rate and lower payment on the auto loan.
How Much Can You Afford
Know how much you can spend on a new or used auto loan before shopping for a car. Some buyers find a car first, and then submit an application for financing. Finance companies review existing debts and monthly income to determine if you can afford a particular price. Getting pre-approved for an auto loan before going to a dealership alleviates looking at cars that are out of your price range. Plus, pre-approvals let you know in advance if you're even able to qualify for a car loan.
Down Payments and Interest Rate
If getting the lowest interest rate and monthly payment are a top priority, save money for a down payment before buying a car. Auto lenders do not require down payments. However, Financial Web recommends putting a sizable down payment on the loan to help you negotiate a lower interest rate. Down payments can be as little as 10 percent of the sale price or as much as half the sale price. Plan to put a minimum of 20 percent down.
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